Wednesday, April 14, 2010

The Disposition to truck and barter

I have been thinking about Smith's claim in the opening arguments of the Wealth of Nations that the source of the Division of Labor is "the disposition to truck and barter." This has always puzzled me. He makes it clear that what he has in mind is disposition to truck and barter for its own sake. Why is such a disposition necessary in order for self-interested individuals to see the advantage of specialization and trade?

I have a suggested answer. In many potted histories of economic thought you may see a comparison of Smith and Ricardo on trade which says something like, " Smith focused on absolute advantage while Ricardo pointed to comparative advantage as the source of gains from trade." This seems to me to miss the point. What is distinctive about Smith on trade is that he makes the the differing advantages, absolute or comparative, that people have a consequence, instead of a cause, of specialization. By specializing we become differently skilled, though prior to specialization we are identical. This in turn reflects the fact that "the division of labor is limited by the extent of the market." A Portugal and England with identical resource endowments and identical increasing return technologies for producing wine and textiles can gain from specializing and trading. And it doesn't matter who makes the wine and who makes the textiles.

So here's my suggestion. If, prior to specialization, we are all pretty much alike, a disposition to truck and barter for its own sake, even where apparent gains from trade are negligible to non-existent, could get the specialization ball rolling.

11 comments:

rosserjb@jmu.edu said...

Kevin,

I am not sure this is relevant, but back in 2005 I published a paper in JEBO by Horan, Bulte, and Shogren on "How trade saved humanity from biological excusion" a theory of Neanderthal extinction." It drew on recently discovered anthropological data showing that apparently humans traded more with each other while Neanderthals tended to be self-sufficient. A great mystery has been how humans beat out Neanderthals, given that the latter were probably physically stronger and had bigger brains.

Anyway, the paper showed that "the gains from trade" in such a society could be sufficient for humans to overcome inferiority in physical and mental capacities in a competition. So, maybe there is something to Smith's theory, although maybe it developed out of this ancient competition.

Of course, I am probably the co-blogger here who is friendliest to trade...

Shag from Brookline said...

Does this suggest that the establishmet of the EU was predisposed? Has specialization improved as a result?

John said...

Kevin - It seems to me that your argument hinges on a biological question: are we all "pretty much alike" prior to specialization? Or, are there genetic predispositions that differentiate us, perhaps even in terms of ability/desire to specialize? I don't have an answer, but I do believe that it's a fundamental issue.

BruceMcF said...

An instinct to workmanship would also lead to specialization even where the entire basis for the increasing returns are skills developed rather than inherent talents.

kevin quinn said...

Barkley: so maybe humans had the disposition to truck and barter while the Neanderthals didn't?

John: David Levy and Sandra Peart are doing interesting work on the way in which the transition from Classical to Neoclassical economic thought was a move away from the 'analytical egalitarianism" of the former. The biggest component of the analytic egalitarian view, as they use the term, is the conviction that humans are more or less alike by nature, so that differences reflect environment and the results of specialization. But I realized after writing this that a disposition to truck and barter - or as Bruce notes, interestingly, a Veblenian instinct of workmanship- could still be valuable even in a world of inherent differences. This is because the decision about whether or not to specialize is a coordination game and your decision to specialize is a strategic complement of mine. If I specialize and no one else does, my payoff will be lousy: there will be no market for my goods. I prefer to specialize when others specialize and to remain self-sufficient when others do so. There are two equilibria, with the one with trade obviously better for everyone. The disposition to T+B, or The IW, could then insure that the better equilibrium is selected. (Or, rather, it will change the payoff to specializing when few others specialize so that specializing becomes a dominant strategy.)

Barkley: I am definitely going to read that paper. Thanks for the tip.

rosserjb@jmu.edu said...

Kevin,

The archaeological evidence in the paper suggests humans did it more than Neanderthals. Sources there show greater diversity of objects with more non-local ones in human than Neanderthal concurrent caves.

I think that the emergence of specialization does not necessarily entail some coordination problem. So, if almost everybody is producing mostly one thing, say grain in Central Europe several thousand years ago, then it is not a big deal for someone to specialize in making beer out of the already-being produced beer, which is what happened.

John said...

Kevin - I'm not sure why the first person to specialize in this type of game would necessarily have to expect a bad payoff. If everyone else is alike (self-sufficient), but one person specializes in, say, a more efficient way of procuring water (thereby bettering his chances of survival), then it would seem to me that that person would have both an advantage and a clear incentive to have done so, without a market for this specialization, a priori, having to exist. No?

rosserjb@jmu.edu said...

I meant to say "making beer out of the already-being produced grain," although probably most figured that out.

TheTrucker said...

I am of the opinion that the advent of tools precedes trade. A tool arises as the individual wishes to reduce the necessity of his labor. The tools (capital) result in producer surplus providing that which can be traded. Various individuals create various surplus. Stealing the surplus of others may have preceded trade when some were unable to develop any skills and were forced to employ compassion, patriotism, morality, and other versions of snake oil.

To trade ones excess production for what one wants seems natural.

http://www.greatervoice.org/essays/TheBerryPatch.php

media said...

i thought the more general idea is 'spontaneous symmetry breaking', or the second law of thermodynamics as seen from a reference frame in an open system.

so the 'gains' are an illusion, like time, due to sampling error. (keynes said something about the long term...) don't forget your conservations laws (alot of trade seems to be in junk, literally and figuratively).

Eleanor said...

A lot of early trade was materials that were available in one area, but not another. Michigan float copper went all over North America in precolumbian times. Flint and obsidion for tools went long distances very early on. African trade routes took salt south and brought gold north. Amber went from the Baltic to Mediterannean. This is comparative advantage, isn't it?